Analysis: U.S. employers concerned by Europe's debt woes

By IBT Staff Reporter06/04/10 AT 5:21 PM

U.S. employers, who have been cautiously but steadily adding back workers amid evidence of a continuing economic recovery, are rethinking some hiring plans as they await the resolution of Europe's debt crisis.

Worries about the impact of a potential double-dip recession as a result of problems in Greece, Spain and other economies are tempering some of the optimism employers feel about the U.S. economy, and could cause an ongoing recovery in jobs to slow or be pushed back further.

But staffing industry executives also note that a pick-up in their own business is stronger than government jobs figures indicate. Their comments come after a weaker-than-expected report on May nonfarm payrolls. The U.S. economy added 431,000 jobs outside the farm sector last month, but private employment, a barometer of underlying labor market strength, climbed just 41,000, far fewer than expected, while the jobless rate dipped to 9.7 percent.

Staffing shares were lower across the board in early trading, as were broader U.S. and European stock indices.

Tig Gilliam, who heads North American operations at Swiss staffing giant Adecco SA (ADEN.VX), said clients remain cautiously optimistic about hiring, but headlines from Europe are shifting emphasis toward more caution, less optimism.

It's (caused) a lot of clients to sit back and say, 'Let's take another look at our plans here, and be extra cautious about what we're doing in case there's spillover from Europe,' Gilliam said.

Strong economic news and corporate profits might have pushed more employers to add workers but that has been tempered by concern over what might come from a double dip in Europe.

He added he was optimistic Europe's problems will be resolved.

Gilliam said he was disappointed by the modest 31,000 rise in temporary employment last month, saying it did not square with Adecco data, which shows accelerating demand for temp workers in manufacturing, technology and other areas.

FRESH UNCERTAINTY

Roy Krause, Chief Executive of U.S.-based SFN Group Inc (SFN.N), formerly called Spherion, said investors were overreacting to the May jobs report. Permanent hiring typically lags increases in temporary employment, and the recovery is still relatively young, he said.

But he, too, said gloomy headlines were weighing on the minds of employers.

With all the uncertainty, it doesn't surprise me that we're not seeing as much permanent hiring as people expected, he said. Every day for the last month, we've seen something go wrong, whether Greece, or credit, or the oil spill.

One way employers are addressing the uncertain climate is by looking for more flexibility on costs, Krause said. For example, more clients are looking at outsourcing their recruitment functions.

They don't want to add back, or rebuild, their recruiting staff, Krause said. SFN, like many of its peers, runs a recruitment process outsourcing (RPO) business.

While Friday's jobs report was disappointing, it contained further evidence the recovery was continuing. Importantly, average work hours expanded, which is key because more part-time workers need to work full-time before companies are forced to take on additional workers.

Demand for temporary workers remains strongest in the light industrial sector, Krause said, but has lately been broadening to other areas, like mortgage banking and technology.

Job postings in technology and engineering are up 50 percent from last year, and up 2.5 percent from April, said Scot Melland, CEO of Dice Holdings Inc (DHX.N), which runs the Dice.com technology jobs site.

Postings on Dice's eFinancialCareers.com site are up 3.5 percent from April, said Melland, who said he was surprised by the tepid growth in the government report. Recruiting activity in these professional, high-skilled areas is increasing steadily, though it is not accelerating, he said.

Still, the health of the global economy -- including factors like tension on the Korean peninsula and the Gulf of Mexico oil spill -- is very much on the minds of employers.

Most of our customers are still trying to determine whether what's happening in the EU and around the world ... is going to impact their business or not, he said. Especially in the financial services area, there are a lot of conversations about what's happening globally but it really has not changed their hiring plans.